FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Commission file number 1-9340
REEBOK INTERNATIONAL LTD.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-2678061
____________________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Technology Center Drive, Stoughton, Massachusetts 02072
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(617) 341-5000
_________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of registrant's common stock,
par value $.01 per share, at May 8, 1995, was 79,849,576
shares.
<PAGE>
REEBOK INTERNATIONAL LTD.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1995 and
1994, and December 31, 1994 . . . . . . . . . . 2-3
Consolidated Statements of Income - Three
Months ended March 31, 1995 and 1994. . . . . . 4
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1995 and 1994. . . . . . 5-6
Notes to Consolidated Financial Statements . . . 7-8
Item 2
Management's Discussion and Analysis of Results
Of Operations and Financial Condition . . . . . 9-12
Part II. OTHER INFORMATION:
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . 13
Items 2-3 Not Applicable . . . . . . . . . . . . . . . . . 13
Item 4 Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 14
Item 5 Not Applicable . . . . . . . . . . . . . . . . . . 14
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . 14
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994 1994
__________ __________ ___________
(Amounts in thousands)
Current assets:
Cash and cash equivalents $ 64,980 $ 65,989 $ 83,936
Accounts receivable, net
of allowance for doubtful
accounts (1995, $45,487;
March 1994, $48,938;
December 1994, $44,862) 738,125 615,462 532,475
Inventory 635,920 512,623 624,625
Deferred income taxes 73,660 59,892 66,456
Prepaid expenses 29,352 27,911 29,952
__________ __________ __________
Total current assets 1,542,037 1,281,877 1,337,444
__________ __________ __________
Property and equipment, net 180,745 134,169 164,848
Non-current assets:
Intangibles, net of
amortization 98,639 96,156 96,196
Deferred income taxes 4,256 - 2,910
Other 45,008 32,792 48,063
__________ __________ __________
147,903 128,948 147,169
__________ __________ __________
$1,870,685 $1,544,994 $1,649,461
========== ========== ==========
-2-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31, December 31,
1995 1994 1994
__________ __________ __________
(Amounts in thousands, except share data)
Current liabilities:
Notes payable to banks $ 87,309 $ 45,105 $ 63,837
Commercial paper 65,000 62,000 -
Current portion of
long-term debt 5,148 3,263 5,190
Accounts payable 180,097 150,253 170,622
Accrued expenses 189,782 143,590 157,479
Income taxes payable 129,272 109,737 102,392
Dividends payable 6,066 6,197 6,068
__________ __________ __________
Total current liabilities 662,674 520,145 505,588
__________ __________ __________
Long-term debt, net of
current portion 135,728 133,373 131,799
Deferred income taxes - 71 -
Minority interest 26,180 16,192 21,569
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01;
authorized 250,000,000 shares;
issued 1995, 116,614,838;
issued March 31, 1994,
118,894,897; issued December 31,
1994, 117,155,611 1,166 1,189 1,172
Additional paid-in capital 145,382 232,431 167,953
Retained earnings 1,487,909 1,257,768 1,428,058
Less 36,210,902 shares in
treasury at cost (603,241) (603,241) (603,241)
Unearned compensation (2,898) (3,128) (2,598)
Foreign currency translation
adjustment 17,785 (9,806) (839)
__________ __________ __________
1,046,103 875,213 990,505
__________ __________ __________
$1,870,685 $1,544,994 $1,649,461
========== ========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
____________________
1995 1994*
____ ____
Net sales $ 935,478 $ 857,366
Other income (expense) 1,138 253
_________ _________
936,616 857,619
Costs and expenses:
Cost of sales 557,399 519,844
Selling, general and
administrative expenses 265,263 223,719
Amortization of intangibles 1,002 1,136
Minority interest 3,377 2,682
Interest expense 6,561 5,237
Interest income (2,792) (1,111)
_________ _________
830,810 751,507
_________ _________
Income before income taxes 105,806 106,112
Income taxes 39,889 40,323
_________ _________
Net income $ 65,917 $ 65,789
========= =========
Net income per common share $ 0.80 $ 0.77
========= =========
Dividends per common share $ .075 $ .075
========= =========
Weighted average common and
common equivalent shares
outstanding
82,602 85,320
========= =========
* Certain amounts have been reclassified to permit comparisons.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
________________
1995 1994
____ ____
(Amounts in thousands)
Cash flows from operating activities:
Net income $ 65,917 $ 65,789
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 9,766 7,098
Amortization of intangibles 1,002 1,136
Minority interest, net of dividends paid 3,377 1,902
Amortization of unearned compensation 1,118 148
Deferred income taxes (8,173) (3,577)
Changes in operating assets and
liabilities, exclusive of those arising
from business acquisitions:
Accounts receivable (185,572) (153,609)
Inventory 9,483 3,631
Prepaid expenses 1,337 (6,264)
Other (12,426) 1,833
Accounts payable 2,241 8,245
Accrued expenses 30,237 (628)
Income taxes payable 26,114 28,012
__________ __________
Total adjustments (121,496) (112,073)
__________ __________
Net cash used for operating activities (55,579) (46,284)
__________ __________
Cash flows from investing activities:
Payments to acquire property and
equipment (19,452) (8,757)
Payments for business acquisitions (2,305) -
__________ __________
Net cash used for investing activities (21,757) (8,757)
__________ __________
-5-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
___________________
1995 1994
____ ____
(amounts in thousands)
Cash flows from financing activities:
Net borrowings of notes payable to banks 16,209 20,516
Proceeds from issuance of commercial paper 65,000 62,000
Net borrowings (repayments) of long-term debt 2,146 (1,732)
Proceeds from issuance of common stock to
employees 2,246 2,774
Dividends paid (6,068) (6,299)
Repurchases of common stock (26,241) (37,243)
________ _________
Net cash provided by financing activities 53,292 40,016
________ _________
Effect of exchange rate changes on cash
and cash equivalents 5,088 1,667
________ _________
Net decrease in cash and cash equivalents (18,956) (13,358)
________ _________
Cash and cash equivalents at beginning of period 83,936 79,347
________ _________
Cash and cash equivalents at end of period $ 64,980 $ 65,989
======== =========
Supplemental disclosures of cash flow information:
1995 1994
____ ____
Cash paid during the period for:
Interest $ 8,499 $ 7,615
Income taxes 13,009 11,826
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
______________________________
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three months ended
March 31, 1995 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1995.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31,
1994.
NOTE 2 - CONTINGENCIES
______________________________
Reference is made to Item 3. Legal Proceedings in the
Company's Annual Report on Form 10-K, dated March 30, 1995
for a description of Byron A. Donzis v. Reebok International
Ltd. et al., Stutz Motor Car of America, Inc. v. Reebok
International Ltd., and Marshall Verano v. Reebok
International Ltd.
The Company and its Rockport subsidiary have entered into
consent decrees with both the Federal Trade Commission (FTC)
and the National Association of Attorneys General (NAAG),
which represents the Attorney General in all fifty states, in
order to resolve issues arising from the pricing policies
announced in 1992 by Reebok and Rockport. Both policies have
since been discontinued. In entering into the agreements,
the Company did not admit any past wrongdoing or liability,
and agreed not to violate the anti-trust laws in the future;
the agreement with NAAG calls for a payment of $9.5 million,
$1.5 million of which will go towards the cost of
administering the settlement, and the balance of $8 million
will be deployed for public works, such as the refurbishment
of public athletic facilities and provision of needed
athletic equipment to deserving organizations across the
country.
-7-
<PAGE>
NOTE 2 - CONTINGENCIES (Cont'd)
_______________________________
Although the Company did not believe that the
investigation by the FTC and the NAAG established any
evidence of wrongdoing by Reebok and Rockport, the Company
decided to enter into the consent decrees to avoid the
considerable expense of protracted litigation. The costs of
the settlement have been fully provided for in the Company's
prior years' financial statements.
-8-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table shows the percentage which amounts in the Consolidated
Statements of Income bear to net sales:
Percentage of Net Sales
_______________________
Three Months Ended
March 31,
__________________
1995 1994
____ ____
Net sales 100.0% 100.0%
Other income (expense) .1 (.0)
______ ______
100.1 100.0
Costs and expenses:
Cost of sales 59.6 60.6
Selling, general and
administrative expenses 28.4 26.1
Amortization of intangibles .1 .1
Minority interest .3 .3
Interest expense .7 .6
Interest income (.3) (.1)
______ ______
88.8 87.6
______ ______
Income before income taxes 11.3 12.4
Income taxes 4.3 4.7
______ ______
Net income 7.0% 7.7%
====== ======
-9-
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating Results
_________________
First Quarter 1995 Compared to First Quarter 1994
_________________________________________________
Net sales for the quarter ended March 31, 1995 increased
by $78.1 million, 9.1% over the level reported for the first
quarter of 1994. The Reebok Division's worldwide sales were
$818.7 million, an increase of 10.0% from $744.0 million in
1994. The Reebok Division's U.S. footwear sales increased
5.7% to $388.9 million from $368.0 million in 1994. This
increase is attributed primarily to increases in the
children's, classics, baseball and basketball categories, as
well as increases in our retail store sales, which were
partially offset by decreases in some categories,
particularly the performance running category. The Reebok
Division's U.S. apparel sales increased by 28.9% to $44.5
million from $34.5 million in 1994. The Reebok Division's
International sales (including both footwear and apparel)
were $385.4 million in 1995, an increase of 12.8% from
$341.5 million in 1994. Changes in foreign exchange rates
had a $24.9 million positive effect on the Reebok Division's
International sales. On a local currency basis, eliminating
the impact of foreign currency exchange changes, Germany,
Italy, Spain and Canada had increases in sales, whereas
France, Japan, Austria and Holland experienced decreased
sales.
Rockport sales increased by 18.7% to $84.6 million from
$71.2 million in 1994. This increase is due to an increase
in the number of pairs shipped. Avia sales decreased by
23.6% to $32.2 million from $42.1 million in 1994. The
decrease in Avia's sales is due to decreases in both
domestic and international sales. The decrease in Avia's
U.S. sales is attributed primarily to decreases in the
aerobics and cross training categories.
The increase in gross margin from 39.4% in 1994 to 40.4%
in 1995 is mainly due to lower markdowns in the Reebok
Division's U.S. footwear business.
-10-
<PAGE>
Selling, general and administrative expenses increased
as a percentage of sales from 26.1% in 1994 to 28.4% in 1995
partly due to increased spending for sports promotions, the
continuing increased investments in information systems, as
well as higher distribution costs. The increased investments
in information systems are expected to continue over the next
few years. The Company is currently reviewing its spending
to reduce its selling, general and administrative expenses as
a percentage of sales.
Minority interest represents the minority shareholders'
proportionate share of the net income of the Company's
Japanese, Spanish, Korean and South African subsidiaries.
The effective tax rate decreased from 38.0% in 1994 to
37.7% in 1995 due to a change in the geographic mix of
worldwide income.
Year-to-year earnings per share comparisons benefited
from the share repurchase programs. Weighted average common
shares outstanding for the quarter ended March 31, 1995
declined to 82.6 million shares, compared to 85.3 million
shares for the first quarter of 1994.
Liquidity and Sources of Capital
________________________________
The Company's financial position remains strong. Working
capital increased by $117.6 million, or 15.4% from the same
period a year ago. The current ratio at March 31,
1995 was 2.3 to 1, as compared to 2.6 to 1 at December 31,
1994 and 2.5 to 1 at March 31, 1994.
Accounts receivable increased from March 31, 1994 by
$122.7 million, or 19.9%, well above the sales increase for
the first quarter of 1995. Approximately $38.1 million of
this year-to-year increase is due to changes in foreign
currency exchange rates. Dating programs in some growth
categories such as baseball and golf have caused accounts
receivable to increase due to longer collection periods.
Inventory increased by $123.3 million from March 31, 1994,
reflecting increases in most divisions. Approximately $31.3
million of the year-to-year increase is due to changes in
foreign currency exchange rates. Approximately $16.0
million of the increase reflected inventories held by
subsidiaries that the Company acquired since the end of the
first quarter of 1994. The increase in inventory can be
partly attributed to the growth in the Company's retail
business. As more business is done through company-owned
factory-direct outlets, inventory will increase relative to
sales growth.
-11-
<PAGE>
During the twelve months ended March 31, 1995, cash and
cash equivalents decreased by $1.0 million, and outstanding
borrowings increased by $49.4 million, while $26.2 million of
common stock was repurchased. Cash used for operations during
1995's first three months was $55.6 million. Cash generated
from operations, together with the Company's presently
available financing sources, is expected to adequately finance
the Company's current and planned cash requirements, including
the remaining $197.4 million in share repurchases authorized
by the Board of Directors. By March 31, 1995, the Company had
repurchased 12,556,600 shares at an average price of $32.06
since the share repurchase programs began in July 1992.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to Item 3. Legal Proceedings in the
Company's Annual Report on Form 10-K, dated March 30, 1995 for
a description of Byron A. Donzis v. Reebok International Ltd.
et al., Stutz Motor Car of America, Inc. v. Reebok
International Ltd., and Marshall Verano v. Reebok International
Ltd.
The Company and its Rockport subsidiary have entered into
consent decrees with both the Federal Trade Commission (FTC)
and the National Association of Attorneys General (NAAG), which
represents the Attorney General in all fifty states, in order
to resolve issues arising from the pricing policies announced
in 1992 by Reebok and Rockport. Both policies have since been
discontinued. In entering into the agreements, the Company did
not admit any past wrongdoing or liability, and agreed not to
violate the anti-trust laws in the future; the agreement with
NAAG calls for a payment of $9.5 million, $1.5 million of which
will go towards the cost of administering the settlement, and
the balance of $8 million will be deployed for public works,
such as the refurbishment of public athletic facilities and
provision of needed athletic equipment to deserving
organizations across the country.
Although the Company did not believe that the investigation by
the FTC and the NAAG established any evidence of wrongdoing by
Reebok and Rockport, the Company decided to enter into the
consent decrees to avoid the considerable expense of protracted
litigation. The costs of the settlement have been fully
provided for in the Company's prior years' financial
statements.
Items 2 - 3
Not applicable
-13-
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 2,
1995. At the Annual Meeting, the following proposals were
approved:
1. Four Class II members of the Board of Directors were
elected by shareholders as follows (there were no abstentions
nor broker non-votes):
Number of Number of
Name of Votes Cast Votes
Director FOR WITHHELD
_________ ___________ __________
Paul R. Duncan 71,747,814 465,380
William F. Glavin 72,031,119 182,075
Richard G. Lesser 72,042,252 170,942
William M. Marcus 72,040,764 172,430
Item 5
Not applicable
Item 6
(a) Exhibits:
11. Statement Re Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K: There were no reports on Form 8-K
filed during the quarter ended March 31, 1995.
-14-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: May 10, 1995
REEBOK INTERNATIONAL LTD.
BY: /s/ PAUL R. DUNCAN
_________________________
Paul R. Duncan
Executive Vice President and
Chief Financial Officer
-15-
<PAGE>
REEBOK INTERNATIONAL LTD.
(Amounts in Thousands, Except Per Share Data)
Exhibit 11 - Statement RE: Computation of Per Share Earnings
Three Months Ended
March 31,
__________________
1995 1994
____ ____
Primary
________________________________
Average shares outstanding 80,693 83,288
Net effect of dilutive stock options 1,909 2,032
_______ _______
Total 82,602 85,320
======= =======
Net income $65,917 $65,789
======= =======
Per share amount $ 0.80 $ 0.77
======= =======
Fully Diluted
________________________________
Average shares outstanding 80,693 83,288
Net effect of dilutive stock options 1,909 2,155
_______ _______
Total 82,602 85,443
======= =======
Net income $65,917 $65,789
======= =======
Per share amount $ 0.80 $ 0.77
======= =======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1995 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 64,980
<SECURITIES> 0
<RECEIVABLES> 783,612
<ALLOWANCES> 45,487
<INVENTORY> 635,920
<CURRENT-ASSETS> 1,542,037
<PP&E> 306,338
<DEPRECIATION> 125,593
<TOTAL-ASSETS> 1,870,685
<CURRENT-LIABILITIES> 662,674
<BONDS> 135,728
<COMMON> 1,166
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<OTHER-SE> 1,044,937
<TOTAL-LIABILITY-AND-EQUITY> 1,870,685
<SALES> 935,478
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